Portfolio Margin

AAA

DEFINITION of 'Portfolio Margin'

The modern composite-margin requirements that must be maintained in a derivatives account containing options and/or futures contracts. Portfolio margin accounting requires a margin position that is equal to the remaining liability that exists after all offsetting positions have been netted against each other.

For example, if a position in the portfolio is netting a positive return, then it could offset the liability of a losing position in the same portfolio. This would reduce the overall margin requirement that is necessary for holding a losing derivatives position.

INVESTOPEDIA EXPLAINS 'Portfolio Margin'

Portfolio margin requirements have only been recently instituted in the options market, although futures traders have enjoyed this system since 1988. This revised system of derivative margin accounting has freed up millions of dollars in capital for options investors that previously was required for margin deposits under the old strategy-based margin requirements that were instituted in the 1970s.

RELATED TERMS
  1. Margin

    1. Borrowed money that is used to purchase securities. This practice ...
  2. Asset Management

    1. The management of a client's investments by a financial services ...
  3. Margin Call

    A broker's demand on an investor using margin to deposit additional ...
  4. Leverage

    1. The use of various financial instruments or borrowed capital, ...
  5. Initial Margin

    The percentage of the purchase price of securities (that can ...
  6. Futures

    A financial contract obligating the buyer to purchase an asset ...
Related Articles
  1. Forex Education

    Forex Leverage: A Double-Edged Sword

    Find out how this flexible and customizable tool magnifies both gains and losses.
  2. Forex

    How does margin trading in the forex market work?

    When an investor uses a margin account, he or she is essentially borrowing to increase the possible return on investment. Most often, investors use margin accounts when they want to invest in ...
  3. Options & Futures

    Spreading The Word About Portfolio Margin

    An underused opportunity provided in an SEC rule can enhance returns and lower risk for spread traders.
  4. Trading Strategies

    What is a margin account?

    A margin account is an account offered by brokerages that allows investors to borrow money to buy securities. An investor might put down 50% of the value of a purchase and borrow the rest from ...
  5. Options & Futures

    How does leverage work in the forex market?

    The concept of leverage is used by both investors and companies. Investors use leverage to significantly increase the returns that can be provided on an investment. They lever their investments ...
  6. Active Trading Fundamentals

    How is margin interest calculated?

    Before running a calculation you must first find out what rate your broker-dealer is charging to borrow money. The broker should be able to answer this question. Alternatively, the firm's website ...
  7. Options & Futures

    Margin Trading

    Find out what margin is, how margin calls work, the advantages of leverage and why using margin can be risky.
  8. Options & Futures

    Options -- Accessing Stakes In Apple At Less Cost

    Finding Apple stock costly to trade? Here are multiple ways to trade it through low-cost Apple options.
  9. Fundamental Analysis

    What's a Tangible Asset?

    Tangible assets are property owned by a business that can be touched -- they physically exist. Examples include furniture and fixtures, computer hardware, delivery equipment, leasehold improvements ...
  10. Fundamental Analysis

    Cash Flow From Operating Activities

    Cash flow from operating activities is a section of the Statement of Cash Flows that is included in a company’s financial statements after the balance sheet and income statements.

You May Also Like

Hot Definitions
  1. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  2. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  3. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
  4. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
  5. Break-Even Analysis

    An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even ...
  6. Key Performance Indicators - KPI

    A set of quantifiable measures that a company or industry uses to gauge or compare performance in terms of meeting their ...
Trading Center